The question that I keep coming back to is what are the implications of investing/speculating in a technology well before its implications are understood?

Adam Ludwin, the CEO of Chain, talks about how when the dot-com bubble happened, everyone knew at least to an extent that online retail would be a thing. Social networks would be a thing. Digital media would be a thing. The required ingredients were competition, Moore's Law, and time.

Bitcoin is different for a few reasons. It doesn't solve economic problems for most people in developed countries. It's also a development far deeper in the technology stack, a change in ledger management and accounting procedures. The last major update to this was double entry in the Italian Renaissance, which allowed the formation of corporations. The one before that was the invention of zero.

We don't know what the implications of Bitcoin will be. I think a much better analogy for the current bubble is the South Sea Company, since that was essentially people speculating on a new asset class (equity) that was poorly understood at the time. But saying that it's a bad investment because the use cases are not immediately obvious misses the forest for the trees.

The issue I have with Bitcoin is that people invest in it thinking that they are investing in cryptocurrencies, which is in your words what everybody knows will "be a thing". The problem is that they're investing in one very specific cryptocurrency, and there is no way of knowing if it's the one that will succeed. It's equally possible that we're seeing the pets.com or myspace of crypto-currencies -- failed projects in a genre that will change pretty much everything. It's the complete lack of understanding that worries me, and what makes me almost certain this is a bubble that will come down crashing hard.

Exactly, the odds that something else wins are very high, but picking the winner is going to be difficult and possibly not profitable. Really, look for something that can scale to a billion users while incentives are linked to being useful not being an investment as they have different optimizations.

As the original article states, if you're sure that the concept is really going to be a big thing but you don't have a way to pick out the future winner, then investing proportionally in all of them can be highly profitable - as in the example of the dotcom bubble, if you invested in all of the IPOs, it'd eventually be very profitable; most of your investments are in losers, but the few winners make up for them.

I think that Bitcoin is the Friendster or Napster of cryptocurrencies. It is paving the way, but the fundamentals of how it works are unsustainable. Transactions cost too much, take too long, and require too much proof of work. I also expect that a mild inflationary aspect is necessary to maintain liquidity and discourage hoarding.

> It is paving the way, but the fundamentals of how it works are unsustainable.

The fundamentals of how it works can be changed. It is true that entrenched actors may dig in their heels and prevent it from changing, and so some other more fast moving cryptocurrency may take over. An alternative is a hard fork. I think it's possible that a hard fork that has figured out the "right way" will do better than a fresh cryptocurrency doing the right thing but from scratch, because by hard forking you don't have to convince everyone to bootstrap. I accept it may equally go the other way; we'll have to wait and see.

As for requiring too much proof of work, I think that's a fallacy. You're looking at it backwards. "Much" proof of work isn't required; that miners compete by providing it is a consequence of the current value of the block reward and transaction fees. Relatively little hash power is actually required to maintain the network. The reason the current hash rate is so high is because hash rate follows price rather than the other way round. The high value of the mining rewards has attracted many miners. In the future, when the block reward becomes zero and the lightning network has relieved congestion on the main blockchain, traders (actually probably just parties seeking clearing) won't have to bid against each other so hard in fees to get their transactions confirmed. Then transaction fees will drop, so the reward for finding the next block will also drop, unprofitable miners will leave, and so will the hash rate.

So: 1) transactions cost too much and take too long is currently true but if the lightning network effort succeeds then this will no longer be a problem; and 2) too much proof of work is not actually "required".

If we figure out better fundamentals, then it's not a given that eventually successful incarnation of those better fundamentals will be Bitcoin. If Ethereum or Bitcoin Cash or Litecoin or Monero or rlpb_coin or whatever else becomes the cryptocurrency of the future and becomes worth billions, then everyone who bought bitcoin at $10000 or $20000 per BTC will have wasted their money. If the concept of the lightning network is the next big thing, but for whatever reason Bitcoin Cash happens to fit work with it better, then again you lose your bet/investment.

Friendster and napster were central systems that were shut down for legal reasons and were replaced with other more distributed systems. Btc value is derived from its distributed "anti-fragile" nature which would require a lot more effort to shut down.

Sure, but first movers have an advantage due to wider name recognition and in this case a large established market cap and mining network. Unless the underlying tech shifts to somthing more stable or more profitable, last movers are at a disadvantage.

The deflation and high transaction fees seem to favor btc bc miners wouldn't shift to somthing less profitable and those using btc as a value store profit from deflation long term.

The analogy between napster and bitcoin is interesting. Both are decentralized and "stateless." Ultimately p2p solutions like napster were replaced by Spotify/Apple Music. I think this is because the benefits of a stateless and decentralized solution weren't worth the additional complexity. Not sure if the same will be said of cryptocurrency.

IIRC if we track the number of downloads or songs played, even spotify and youtube outcompete torrents by a huge margin, downloaded torrents are just not that popular for music nowadays compared to streaming. The legal services took over most of the mindshare and volume of music distribution, most of the people who used napster back then now get their music from a streaming service, not on a torrent.

Spotify was spun out of private torrent network libraries that still exist independant of spotify. Youtube still gets a lot of uploads from private torrenters trying to generate ad revenue. Just because they are percieved as legal and convienient they get more views, but ultimately where did the content come from?

MP3s are so small compared to the rest of the internet now that there's a glut of shady websites that cater to people trying to get MP3s. Rings tones are a great example why someone with a Spotify account might google an mp3 for a song. Meanwhile you've got tons of semilegal mixes on Soundcloud and Mixcloud. Spotify and Apple Music is just convenience.

These sites also cater to the leaks scene. Every single hot album to drop recently was leaked 24-72 hours before dropping on "official" sources like Spotify. This makes even those people that have Spotify accounts look for MP3s.

All this was thought about the last time bitcoin spiked. Bitcoin is 9 years old. The iPhone wasn’t even around when it was born. If bitcoin was gonna revolutionize money, bookkeeping, governments, and life in general, it would have happened already. The truth is, all bitcoin is at this point is an advanced form of gambling....

The pace of technological development in the past 20 years has been driven by scaling processing, storage, bandwidth, and networks. The intellectual, legal, cultural, and social infrastructure to make that happen already existed for the most part. When tech has an impact deeper in the societal stack, it takes a lot longer for its impact to be felt.

NB: Eternal September was in 1993, when Usenet went mainstream. Facebook, Twitter, etc weren't invented for another decade. Since then, they've both toppled dictators and elected a reality TV star to the Presidency. Change happens gradually, then suddenly.

It's more of a technical note, but probably the last really important change was the accrual basis, which, as far as I know, was popularized in the 20th century. This is the system of accounting where you record revenues and expenses when you become aware of them, rather than when you pay them, so many things end up being recorded as debts. Notably, this is the currently-accepted way of doing accounting.

Cash basis is accepted for the purposes of taxes, but my understanding is that it's not acceptable for legally-mandated reporting. That is, cash basis is not among the generally accepted accounting principles.

Accounting practices, professionalism, standardization, etc have obviously evolved tremendously since then, the same way any technology does as adoption increases. Math wasn't fixed between the invention of numbers and the concept of zero, but it became far more powerful when you incorporated it.

Another way to think about it is with cars. Cars today bear no resemblance to what they looked like or were capable of when they were invented, but nothing around the core idea of putting an engine on wheels has changed. The airplane was different. (But so was the Segway)

As a CPA, double-entry accounting is sort of considered the founding of modern accounting. Everything else is a question of accurate recognition. Luca Pacioli was an Italian dude who was the first person to publish something widespread on double-entry accounting, although the same methods existed in other regions without any formal documentation.

The big effect of the dot-com boom was that it forced every business to have an on-line presence. This was by no means a given at the time. We could have had a world where maybe 20% of businesses, mostly those that were doing mail order, had a web site.

Your question is spot on when you ask if the implications are well understood. History is littered with new financial technologies whose implications were not well-understood which immediately resulted in a bubble. The invention of stocks (South Seas Bubble), of stock margin (1929 crash), federal deposit insurance (S&L crash), collateralized debt obligations (2008 crash).

Historically, being early on a new financial technology has rarely gone well for the participants.

CDOs were not new in 2008. The 2008 crash was a result of growing federal intervention in the housing market (federal mortgage guarantees are a huge cash cow for financial institutions and politicians who get appointed as executives of GSEs like Fannie Mae after leaving office) and the FDIC's subsidization of housing construction loans.

There were large markets in car loan and commercial real estate mortgage CDOs that didn't see a crash anywhere near as large as that seen in residential real estate CDOs and construction loans, and that's because they were not subject to GSE loan guarantees and FDIC deposit guarantees, respectively.

New financial tech takes awhile to become popular enough to become dangerous. So while CDOs were invented in the late 80s, it wasn't until 2000 or so that they started to become a craze that lead to dangerous conditions.

The government through GSEs and FDIC did, as you say, constantly blow air into the housing bubble. CDOs were also a big compounding factor in that they were willing to back an enormous amount of low-interest high-risk loans. Exactly the loans which blew up.

It should decrease (long term) as the amount of 'mining' naturally goes down with the lessened 'reward', per the schedule. The fee based crypto-breaking should be less. As dedicated crypto-breaking hardware is manufactured with an eye towards energy efficiency things should also get better. In the short term, yes, this is totally crazy. But in a few years, things should be much better.

That said, how fucking sci-fi is this?! Remember in the old games and novels how 'energy credits' would be a currency unit in the future. Well, looks like we are in the future then. Bitcoin is pretty much a 'baby' energy credit, it's also more than that, but it is an energy credit in a nascent way. I mean, that's pretty cool to teenager me.

yes, but it's a spent energy credit, it's not like you can reverse it and spend the work, on something else - it has no value other than as a possible future negative asset, something you might be required to purchase carbon credits to cover

Currently it stands at 250kWh per transaction. My two person household in a developed country with lots of appliances uses 6 Bitcoin transactions per year in electricity. Bitcoin eletricity uses is insanity and it's only set up to rise.

Depends on how/when you're getting/spending your electricity. If you're just running your mining operation out of your home, during daylight hours then you'd probably be about right. Presumably mining successfully has a lot to do with getting your electricity at a steep discount. The way we generate electricity, that's entirely possible at certain times.

We're not going to stay in that relatively narrow band for long though, with the growth of this thing. There's only so much "spare" on the grid, off-peak, and this whole thing relies on wasteful means of energy production, storage and transmission.

So on one hand (hopefully) the opportunity to scavenge for cheap CPU cycles is going to contract, while the market for bitcoin expands? Yikes.

That is correct on order of magnitude, at least (25 pounds ~ $33 today). That's one of the reasons Steam is no longer accepting bitcoins[0]:

> transaction fees that are charged to the customer by the Bitcoin network have skyrocketed this year,
topping out at close to $20 a transaction last week (compared to roughly $0.20 when we initially enabled Bitcoin).

It is profitable for the entire network to burn upto 12.5*price of bitcoin dollars worth of coal every ~10 minutes. At $15,000 a BTC, that means miners can consume $27,000,000 worth of electricity a day and still remain profitable. This amount varies linearly with the price of BTC.

As a corollary to this, the cost per transaction also varies linearly with the price of BTC - the more useful BTC becomes for investors/speculators/as a store of value, the less useful it becomes as a tool for transactions.

On the other hand, the high valuation can only be justified by the expectation of it being a really good tool for transactions (or, alternatively, the greater fool theory) and becoming bad at transactions means it'll eventually become also a bad store of value; so a technical solution to transaction cost is highly needed.

I'm not sure that this now oft repeated meme isn't entirely misleading in regards to accounting. Accounting system audit trails have always been immutable in concept and design, and Bitcoin and block chain brings no change to double-entry accounting and current accounting principles.

In terms of general accounting systems, all block chain represents is a strong encryption based means of ensuring immutability of the audit trail - a feature simply not required.

The block chain is an interesting concept. I just don't think entropy should be a valid commodity currency. Here, let's trade spent compute cycles, and then spend more compute tracking where my compute has gone! Yo, dawg! I heard you like entropy so I put some entropy on your entropy so you can track entropy. Meta-Entropy is all the rage these days.

I will posit that the proof-of-work is the only way to have: (1) a trustless decentralized network with (2) equitable distribution/minting of the coin.

I will concede that other coins exist that don't use a proof-of-work (instead proof-of-stake or other). Those forfeit trustlessness and/or equitable distribution. I will also concede that it may be possible for those coins to fulfill a need and be useful without all of those things. Though I doubt they ever could have been created if not for bitcoin having been created first.

Explaining your reason for trusting it doesn't detract from the fact that you are just trading entropy around. "Proof-of-work?" What work? I spent a undefined amount of power from the grid to render a string of digits in a specific pattern? I can flail against my keyboard or pipe /dev/urandom to a file is that worth $16k? Can't you see that you are engaging in madness? Just because you have defined the method of your madness doesn't make it any less insane.

It's not madness. I think you're dismissing it as "insane" without understanding some critical issues. It's [proof-of-work] the only way to do that [what bitcoin does], or rather no one has yet suggested an alternative that preserves those qualities.

The work done for the bitcoin network has utility, that much we can agree on? And you think perhaps that the utility provided by the network is not a net benefit considering the cost of the PoW? Well, unfortunately that much is subjective and there's enough folks out there willing to spend resources on it.

However it's not madness. Proof-of-work is required in order to have a mechanism that has bitcoin's qualities.

If you want to fight against what you might perceive as waste or madness, it seems like tilting at windmills IMO. But the best thing you could do is build a better mousetrap -- or invest/promote one of the non-PoW coins out there.

> The work done for the bitcoin network has utility, that much we can agree on?

No, I do not agree, there is no intrinsic value in wasted compute. The only value that wasted compute can have would be a measure of the amount of entropy spent generating that "value." Entropy has no value. It's just energy that cannot be spent again.

Your bank and other organizations (Western Union, etc) spend a great deal of their time and money to create and maintain networks that permit them to move money from one place to another on Earth. Your bank probably pays to some network in order to be able to send and receive "wires" of money to and fro. Migrant workers use Western Union and the like to send money from the country they work to their families back home. For this, Western Union and the global banking networks charge fees. The fees charged by bitcoin to relay funds can be significantly lower. Probably not universally so, but I'd say all transactions above a certain dollar amount would be cheaper. They'll probably be as fast or faster than traditional remittances. Bitcoin does this as good or better. Western Union and friends could decide that leveraging the bitcoin network might actually be cheaper than their current network, or they might be forced to realize this by competitive pressure from other bitcoin-based remittance companies.

Ok, so that is one use that is IMO unassailable. The people on this planet is putting money into building retail locations for Western Union, they're paying for the power to keep the lights on at Western Union, and they're paying the salaries of the employees at those retail locations, and the folks who staff the armored cars moving the actual cash from place to place. That's not a waste, right? It's spent by us collectively in order to get that value. And maybe bitcoin's difficulty-scaled PoW is not spending electricity well. But it's useful and that's why people do it.

Now your claim is regarding the value of entropy and I will claim that you cannot get a mechanism with bitcoin's qualities (trustless + equitable distribution) unless you have a PoW. But I will concede that you can have a delegated-trust proof-of-stake coin that has some of bitcoin's qualities without a proof-of-work.

I see no current evidence to support "The fees charged by bitcoin to relay funds can be significantly lower."

In the world of finance, the effective cost of technical transactions is tiny (<0.02USD for mass straight-through processing transactions that can handle batching and delay, <1USD for real time settlement of large amounts). Western Union and friends won't realize that leveraging the bitcoin network might actually be cheaper than their current network, because it's not cheaper, not even close to it.

The fee for payments tends to be much larger because of everything else bundled with the payment, but an equivalent service that provides the same things on top of bitcoin would also have to charge similar fees. For example, a large part of credit card fees pays for chargeback and fraud insurance, and all kinds of bonuses/miles/etc which customers like, so if a BTC service wants to take over that business, it'd have to compete with that. Bitcoin transfers are irrevocable, but most consumers want most of their payments to be revocable in certain conditions, so a future "buying stuff with BTC" payment will have to include an escrow service for an additional fee. The branches that allow you to hand over your local currency cash for a remittance, those are expensive, so a remittance service that uses BTC will cost the same as a remittance service that does not.

Well let me know when you can created a distributed network where more than 30% of nodes can fail without a PoW algo. Some are in development of course but until Satoshi did it, 30% was the limit, now we're at 51%

Two ways to deal with PoS distribution: either start out with PoW, or do a well-publicized open sale of the initial token supply. From the coin purchaser's perspective, contributing funds to a sale is economically equivalent to paying the electric company.

There are some huge differences between the dot-com bubble and cryptocurrencies.

Firstly, practically everyone who invests in cryptocurrencies knows that there is a chance that they could drop massively - Nobody is being deceived. If anything, I would say that most buyers tend to underestimate the technical accomplishments and the amount of vision behind most popular cryptocurrencies.

Secondly, unlike companies, cryptocurrencies can never* go bankrupt. They cannot be shut down by any single government. There will always be developers with machines somewhere willing to mine coins.

It's already possible to build businesses/services on top of blockchains and these businesses have a huge advantage over regular businesses; they can never go bankrupt. Also, they are completely autonomous. There was a lot of publicity around DAO (and its subsequent failure) but in spite of this, there are already value-creating businesses based on Blockchain technology which are currently operating under the radar: e.g. IOTA is a cryptocurrency but it's also platform that lets users buy and sell data directly from internet-connected sensors also Siacoin is a file-storage service, Power Ledger is an electricity marketplace... There are many others.

Another huge advantage of most blockchain-based businesses is that anyone with hardware (or virtual machines) can participate in the value-creation process and be rewarded for it.

* Unless maybe there is another massive Carrington Event... But even then it's unlikely that the blockchain of major cryptocurrencies will be completely wiped out.

One big difference between the dot-com stocks and cryptocurrencies is that cryptocurrencies have a sizable captive market: people who have little choice but to use them. They are the best available solution for anonymous transactions and money laundering, so even with the enormous deflation and high transaction fees that have made them a failure in the legal economy, they're still very useful in illegal markets as a medium of exchange.

While the deflation doesn't deter people from spending cryptocurrency in illegal markets, it does deter the recipients from cashing out. And this trend will accelerate as the deflation accelerates. If you're a drug dealer and you receive bitcoin, you have to cash out some portion to pay your people. But now, maybe they're ok with getting bitcoin, too. Even if they don't, you'll hang on til the last second before you cash out, and you'll strive to cash out less and less as the price rises faster and faster, essentially becoming a captive speculator. Of course, if the price crashes somehow, you'll cash out faster, but because accepting bitcoin is a core part of your business, you'll never stop buying entirely.

The question is, where is the natural "floor", based on the volume of illegal transactions and the rate of mining? Is it close to $15K or closer to $1K?

Compared to speculation and illegal transactions, I believe it is negligible. The number of places accepting cryptocurrency is not growing at anything like the rate at which the currencies are appreciating. There's just no incentive to use such an incredibly deflationary currency for purchases, given the difficulty compared to using ordinary credit. Except in markets that have no viable choice.

> Secondly, unlike companies, cryptocurrencies can never* go bankrupt. They cannot be shut down by any single government. There will always be developers with machines somewhere willing to mine coins.

Here's one way cryptocurrencies could go bankrupt: The US government decides it doesn't like cryptocurrencies because of their use in money laundering and other illicit activities, so it puts severe restrictions on conversion between USD and BTC (or whatever other cryptocurrency) by going after the exchanges.

The value of a cryptocurrency is that you can convert it into a fiat currency, ie, one you can actually buy real things with. If that starts being restricted, then the value will plummet.

There's an interesting psychological effect there. Maybe before people buy it, the idea of it being a bubble is first and foremost in their mind. After they buy some, and they see it make them money, it's probably not a big concern for them anymore.

Once they've convinced themselves that it's a valuable investment and have purchased multiple times, the very idea that it could be a bubble is something they will be purposefully be blocking out to keep their view of themselves as rational actors intact.

So you'd probably be surprised how many people will very quickly refuse or mock the idea that Bitcoin could be a bubble. This is especially so if people do the usual thing and actually merge the idea of being a 'Bitcoin investor' into their own personal self image. At that point, all bets are off, and a Bitcoin crash can quickly become a suicide event. It's why we have laws around investments and gambling to try and protect people.

If a sha-256 exploit came out relatively suddenly, such that anyone could generate private keys for a given account key, bitcoin's value really would go to $0. I don't think this is likely, but I think maybe 1% over the next 10y is reasonable.

Not quite. A sha256 preimage attack would possibly let one mine blocks more quickly, but would be significantly more difficult than a collision attack, which won't help you in this case. On the other hand, finding private keys for a given account would require solving elliptic curve discrete logarithms, and only then for bitcoin addresses which have been used as inputs to transactions. (This is one reason why change addresses are a good idea).

Generating a private key for a given public key is computationally infeasible with current approaches: right now you'd just have to brute force it. But if someone finds a vulnerability they might be able to cut that time down to where it's commercially viable to get the private keys. At which point there's no way for anyone to prove they're the true owner of an address.

Blockchain-like technologies are here to stay, for currency as well as other things. Whether it's the current incarnations (Bitcoin, Ethereum, etc) or some future ones, remains to be seen.

I am certain the concept will persist. I am just unsure which version(s) of it will carry on the torch.

> cryptocurrencies can never go bankrupt*

Well, memes die all the time. CCs can still die, but arguably it will be a "true death" - sort of like a global agreement that the thing has become useless.

I also want to point out that a lot of these algorithms are based on consensus. It is conceivable that someone with lots of resources could build up lots of fictional players to try and swing the "consensus" in a certain direction.

Have you actually gotten rich? As in, have you realized any of your gains; have you diversified your (new) assets so that at least a significant part of them is in something that's not speculative and can't go down much even if you're mistaken?

For example, silicon valley is full of people that were once multi-multi-millionaires on paper by holding stock that had an extremely high price, but didn't manage to get to sell it until the valuation collapsed. There's much more of them than the actual multi-multi-millionaires.

It's easy to get on the train, much harder to know when to get off. I still remember the anguished posts four years ago on HN from people who put their life savings into bitcoin shortly before the market crashed. One Reddit user on r/bitcoinmarkets posted that he had lost everything and took his own life. It took years for the market to recover. Don't fool yourself, nobody knows where this train is going.

The financial shitstorm that it's gonna cause is when the world comes to its fucking senses and realizes that burning electricity to move around Internet Fun Bucks is a massive waste, the bottom falls out entirely, and this whole thing is finally behind us. I'm gonna feel vaguely sorry for everyone who put their life's savings into Dunning-Krugerrands to get a handful of lucky nerds who got out at the right time rich.

I'm pretty sure that's going to turn out to be pension, mutual funds, and banks, just like last time, and everyone is going to be screwed. The question as bitcoin rises is how much has been borrowed against bitcoin holdings in how many ass-backward, half-fraudulent, made-legal-by-obscure-clauses-in-amendments-written-by-lobbyists-and-attached-to-unrelated-bills-with-bipartisan-support ways.

I'm long on bitcoin. I think it's awesome and a powerful, clever innovation.

But I don't think that cryptocurrencies will cause a "shitstorm". I'm under no delusion that Your Favorite Bank or Stock Exchange won't exist in two years, or in ten or even twenty. Managing and storing/handling/operating cryptocoins is not for the feint of heart. At best, the most disruption you might see would be the Coinbases of the world having a bigger role in some of the global financial market and traditional financial giants having some slightly smaller role to make room.

Holding bitcoin on your own is better than putting money in your mattress, but it's way, way, way less safe than an insured deposit in a bank. The volatility will decrease but it will at best be subject to the same 0.5-1% intradaily swings that a foreign currency goes through. It would take a substantial amount of time and money for it to settle down that much, though.

The economist John Kenneth Galbraith wrote about bubbles in his book A Short History of Financial Euphoria. If you're intrigued by such economics events, this is a good, quick read (on the "tulip craze", junk bonds, etc):

It depends. If you send me a signed transaction that spends some of your money, you can simply put that into the blockchain.

The issue is that you might send multiple such transactions spending the same money. If I want to guard against others trying to spend the same money I have to wait until the transaction is a few blocks deep. Generally the advice is 6 blocks which should be about an hour.

I was thinking about this - it probably won’t be. It’s just a lot of people will end up feeling sheepish.

Recessions tend to bring down economies when they impact on wider economic activity - eg in the Great Depression it was all the loans taken and functional capital misused to play on the stock market. In the Great Recession it was mortgages in arrears, and the huge credit crunch as banks tried to balance their books.

At least at the moment, Bitcoin is probably mostly made up of small investors using small savings (sub 20k USD) that aren’t leveraged up in any way. If Bitcoin collapses, people just lose their shirts, but not their homes and jobs.

By now I think it's essentially zero-sum gambling what's going on. No dollars are going to be destroyed when the bubble bursts (if it is a bubble). They just change owner. No factories will close. Probably no major banks are going to crash. Just individuals losing or earning money.

All of this of course might change if/when factories/banks begin to invest heavily in bitcoin.

Right now it'd probably be a net positive to the economy. Many of the people who were in early and have made paper millions weren't all that rich before and just happened to get lucky, while the money that's cashing them out now is largely coming from wealthy people & institutions that don't want to be left behind. Redistribution from rich -> poor is usually an economic plus, because it shifts cash from people who have a tendency to sit on marginal dollars to people who have a tendency to spend it.

This could reverse if the average man on the street starts investing significant amounts of money, enough that they'd miss it if it evaporated. Then we'd get a big recession when the bubble popped.

Bitcoin really worries me. I don't think cryptocurrency is a bubble, but I believe Bitcoin could be, and that its crash could cause a lot of market chaos, and hurt a lot of people.

What the general public doesn't understand about Bitcoin is that its promise was betrayed by its ruling elite. It is no longer peer-to-peer electronic cash, because it cannot scale to allow widespread peer-to-peer usage. It is increasingly becoming a pure speculative vehicle, with no utility other than as a store of value (and a very expensive to transact one at that).

In other words, the advocacy done years ago to put Bitcoin into the public consciousness was all based on a premise that turned out to be a lie. The investing public doesn't know any of this.

Why I say it 'could' be a bubble, rather than that it is a bubble, is that it could find utility as a form of central bank money. While the masses wouldn't be able to use it, it's conceivable that it could have enough utility to large financial institutions to maintain a very high value.

Crypto currencies are like TCP/IP in a world with no use cases for networks. I've said from day one that the day I will start using Bitcoins is when it's "market ready", meaning that my mom can use it and it meets the demands put on regular payment services today in terms of reliability and speed. BTC is nowhere close, more specifically no cryptocurrency at all is anywhere close. Bitcoin has barely moved from being a cool proof of concept, which is worrying. And now people are "investing" heavily in something they don't understand, if buying a currency can even count as investing.

In order to justify the current valuation of bitcoin, there needs to be some (at least one, but preferably more) future use case that's extremely useful to masses and would have a very large market cap because of it's large scale usefulness.

The author mentions a bunch of candidate use-cases that might perhaps somehow justify it (including ICOs), but finds them all insufficient. If it's not competitive to replace a large portion of world wide consumer payments, then the author doesn't see any other use case (other than pure speculation i.e. holding BTC with expectation that they'll appreciate) that's sufficiently huge for the valuation/market cap BTC is currently trying to fill.

> ... whose backers posit its primary value as a way to avoid the rule of law ...

Sounds bad. But here's what Ari Paul actually said:[0]

> So there are quite a few use cases. I think the biggest and clearest, and easiest to understand, is as a store of value that can't be censored and is resistant to seizure. And so, the really clear example of demand for this, that I see, is the offshore banking system. Which is roughly 20 trillion dollars today. And it's not just people trying to dodge taxes. Apple, Amazon, every billionaire on the planet, has wealth stored there. And firms like JPMorgan collect fees to offshore law abiding citizens’ wealth. And people want to store their wealth securely, in a way that no single judge could freeze all of their assets. Right? Amazon doesn't want their entire global business operation to be shut down by one judge in Brussels. They want to be able to go through a lengthy appeals process and keep their business operating. So cryptocurrency performs that same task of the offshore banking, of keeping wealth secure an order of magnitude better. So we see massive real fundamental demand for this use case.

An offshore account in Belize (forgive me Belizeans, I'm not sure about your taxes, your name just came to my mind) is useful because an USD transfer from an anonymous Belize company can be used to buy a yacht or mansion in USA.

Bitcoin is currently (mostly) unrestricted because it has many use cases, it's unclear which are the main ones, and there's a lot of posturing about the legitimate use cases. However, in the long run, if it becomes clear that the other use cases fail and only this one remains, then this one will be (made) useless as well - a single act of law requiring all legitimate sellers to verify the identity (and tax status) of every transaction in bitcoin above USD $1000 (like https://en.wikipedia.org/wiki/Currency_transaction_report for cash), and it's suddenly not worth to store billions in it. Sure, the small scale people will use it to stash their wealth, but they don't have that much wealth to begin with, and that usecase won't justify the immense market cap associated with a $19000 BTC price.

There are ways to get dollars from Bitcoin that the US government can never stop. That's one of the key benefits. Whether sellers are "legitimate" or not doesn't require approval from any government.

That's especially so for the wealthy, who can afford requisite bribes and whatever. That includes the newly Bitcoin-wealthy, many of whom are libertarians or anarchists. But as you say, "small scale people will use it to stash their wealth", and that's another key benefit. It democratizes privacy from government intrusion.

His point is that Bitcoin/the blockchain doesn't enable any new applications that people care about[0], while it was obvious to everyone at the time that the internet enabled all sorts of new businesses. He's not claiming Bitcoin is a business anymore than he's claiming the internet is a business. And the ICO stuff is just supporting the his argument that the technology has no underlying value.

[0]: Someone will probably comment, "but Bitcoin[1] enables decentralized blah-blah-blah". Okay, but why is the decentralized version any better? Centralization works fine for almost everything, and in fact is the trend in technology.

[1]: Someone else will probably say, "Bitcoin is just an instance of a blockchain/a distributed consensus protocol/whatever you want to call it and that's what's revolutionary." Okay, fine, but what applications does it enable that aren't better served by existing technology?

The "it's a sure thing" posts have really been ramping up in recent days. Lots of talk on reddit about how people should take their money out of the evil banks and put it in Bitcoin where it's "safer" and "sure to make them more money".

I just think it's an amazing opportunity to be part of a bubble. I missed the last two bubbles (real estate and dot com). Bubbles pop, sure, but putting at least some money into them can pay off, of course I'm willing to lose whatever I put into it.

If you assume that a bubble starts and ends at the same place[0] then a bubble just serves to transfer wealth from one group of people to another. If you think you know something that allows you to be on the receiving end, great, you might even be right. Otherwise you're just gambling.

[0]: Simplifying somewhat since some assets like stocks, homes, etc. have upward trends so the bubble probably ends slightly higher than it started.

An article claiming bitcoin's a bubble? Wow, hadn't considered that before!

Just yesterday it came to light that the ECB was purchasing fraudulent bonds that are now worthless. The Bank of Japan is directly buying ETFs. The Federal Reserve increased the money supply to levels never seen before using QE, and has yet to reduce its balance sheet even slightly. Housing is more expensive than it's ever been. Stock markets are more expensive than they've ever been. Everyone knows the official rate of inflation is well below the real rate. Our savings accounts have effectively negatively interest rates. But bitcoin is the bubble.

Bitcoin is the only safe haven asset available for purchase right now. It's the only asset that doesn't require me to trust an institution or an individual. It can't be confiscated. It's rules are known.

The quickest way to tell that bitcoin is a bubble is when shysters start making breathless posts like yours.

Bitcoin as a populist movement?? No sir. It is pure greed (and probably a healthy dose of good old fashioned MtGox style exchange manipulation) driving this bubble. Nobody buying right now is participating in some kind of mass uprising against the man. They are buying, holding, and praying they can unload their stash onto some greater fool right before the whole thing collapses.

No safe haven asset is as volatile as bitcoin. Bitcoin is over 9 years old. It still can’t, and never will, scale to handle even an order of magnitude less transactions than visa. The blockchain is worthless for almost every application. Bitcoin, at this point, is pure hype.

Bitcoin has been taken as a joke for 9 years by anyone unwilling to actually learn about it. It's come a long ways since Mt Gox and is arguably the freest market in existence. There are online exchanges in every major country that run 24/7. You can trade without an exchange at all using localbitcoins.com. Anyone is allowed to participate and no one can manipulate the fundamental rules of the currency.

You've got an entire darknet, you've got 80% of the world's population living in areas where censorship resistance is valuable. Chinese wanting capital flight, inflation infested countries looking for an alternative, areas of high political risk and instability.

To say its not really useful for anything is just facetious. Bubble sure, tech isn't there yet sure, no future use cases, now that's definitely not true. Will the use cases be worth 400 billion, that's a better question.

> you've got 80% of the world's population living in areas where censorship resistance is valuable

Setting aside the fact that censorship is not a technical problem but a political and societal one, Bitcoin's max transaction rate is so pathetically low that if 80% of the world's population used Bitcoin, they'd be lucky to make a single transaction every 45 years! Bitcoin can't even scale to what would be required to service a single football stadium during halftime.

> To say its not really useful for anything is just facetious

It's useful for anything illegal -- money laundering, drugs, murder for hire, etc. And even then, the traceability, extreme volatility, and long confirmation times make Bitcoin a poor choice for even the sketchiest of mob bosses.

Bitcoin's primary use case is scamming naive, starry-eyed libertarians, an-caps, and goldbugs out of their hard earned dirty fiat.

"Will the use cases be worth 400 billion" is not the better question, it is the whole question. For a potential investor in this moment it doesn't really matter if in the end Bitcoin turns out to have a market cap of 4 billion or 0, in both cases they've lost (almost) all that they invested.

Yes, censorship free money is useful for some people for some purposes - but most people in most purposes won't be willing to pay a single cent extra for this feature; if I'm buying a sandwich for lunch, I'm not going to buy it with censorship free money unless that service is better on its own disregarding the censorship issue, and BTC-as-it-is-now is not better in other aspects nor is it cheaper. While a lot of people might want a few such transactions for some special needs, those transactions are the edge cases that constitute a tiny, tiny fraction of the daily global commerce.

Throughout November I got several emails a week advising me to invest in Bitcoin and now I even see adverts for Bitcoin on the websites of newspapers. At this point it's obvious it's a bubble. What's not obvious is whether the bubble will burst violently or the true value of Bitcoin will softly catch up with its price.

Is bitcoin volatile? Absolutely...but how do you expect a completely new asset type to behave? At this point bitcoin is a populist movement just as unexpected as Trump or Brexit. It's a populist revolt against monetary policy which people have no control over. Of course this trustless and decentralized asset type forcing it's way into the world financial system is going to experience volatility.

> It's the only asset that doesn't require me to trust an institution or an individual. It can't be confiscated. It's rules are known.

If we really want to take this argument to an extreme, the government can kill you, torture you, throw you in a jail cell, or otherwise apply force until you give up your bitcoins.

If I thought the world economy was on the brink (I don't) I would buy non-perishable food, water, firewood, a generator, fossil fuels, solar power, etc. Of course the government could kill me and seize all of that too, so I'd probably want to buy a bunker in some remote part of the world.

If Bitcoin truly becomes this disruptive all anyone needs to do is go into your home and rob you of your private key. Are you investing in weapons? How is this safer? It actually seems like it would be easier to take someone’s private key than other pieces of property.

If someone kidnaps Bill Gates, forces them to do whatever for a limited time, and he later gets out alive, he'll still retain the vast majority of his wealth no matter what.

For an ordinary person, investing in real estate is a simple example that meets this test - you can beat me up with a wrench and force me to do stuff, but I'll be able to recover (most of) it afterwards. For the common person, irrevocable transactions bring little benefit but a lot of risk, it's a drawback not a feature.

Yes, that's not resistant against the government - but again, a normal person is a lot more likely to encounter criminals trying to "confiscate" everything they own rather than government doing the same. Sure, there are edge cases (e.g. fraudsters stashing their gains, deadbeat dads refusing to support their kids, etc, etc) but for a normal person worrying about government seizure is much less relevant than, for example, ensuring that you don't lose your BTC in a house fire that burns all your stuff. Would your fire insurance cover that?

When the overall bubble pops, where are you going to go? Will you trust the dollar? What if bonds are defaulting and no one is paying their debts, will you stay in the dollar? What if there's significant inflation? Your life savings are subject to the whims of unelected central bankers who are deciding the winners and losers.

While the US dollar value is indeed going down a bit lately, there is one thing about global economy. At this very era, no matter what the deficit is, the US federal government will continue to borrow money from creditors. Sure at some point there will not be enough cash so the government is forced to print more money (essentially QE again).

The point is certain large institutions will always have someone to backup. This is why I kept arguing the other week about stock vs estate property (but kept getting downvotes brcause apparently people did not like when I suggested to invest in real estates). When bonds and everything else fail, people will find every penny to find a place to live. But that’s my conservative belief.

Citibank will not fail - someone else come will in and swallow it (or government will bail) - the number of global customers just cannot let Citibank fail completely.

Bitcoin on the hand is completely different - there is no one to back it up. It’s either a up or down game. There is no prediction based on revenue or “exciting new breakthrough”. But its weakness is also an advantage the way I see. Bitcoin and likes allow investors to focus on buy and sell without studying hard about the market. It’s a pure gambling - yes I realized there are maths and logics in defeating gambling games casinos....

Honestly - selfishly, I really want to see bitcoin fail to thr bottom so late riders like I get to buy some :(

But I urge folks to be ready for a sell. There is absolutely no way bitcoin will keep rising this way. It will either crash in 2-3 months back to $500-1000 or there will be a ceiling (e.g resetting the base price).

No one can answer your question as no one knows what the next recession will look like. In the scenarios I described, bitcoin is an obvious safe haven. In which case, I'd expect the price to go higher.

Bitcoin has never lived through a recession yet. No one knows how it'll behave. It was born in the flames of the great financial crisis. Hopefully it solved the problems that it was created to solve.

First off. This-is-a-bubble. I'm not saying it's not. But, bitcoin IS solving major problems and it WILL fix the problems it has. Will it still be worth ~$20K/BTC? Maybe not, but maybe it'll be more. Hard to say.

I can not imagine how Tim could think that cryptocurrencies, and more specifically blockchain technology, "doesn't solve anything." This is such a stupid statement to make.

How exactly does a way to do trustless computing around the world equal "doesn't solve anything?" Brain dead opinion.

1. Removing the central party was always key for making a system that could benefit everyone and not create rules that favored the powerful. Your question is phrased such that it’s talking about trustless computing as a whole so it can be applied to things such as creating a true and verifiably secure direct democratic system that everyone can trust and understand given some level of tech knowledge.

2. To establish a system of trust requires physical secuirty, political power, and financial resources that make this kind of computing only possible for the rich and powerful unless it’s already in their interest.

3. Price is an excellent indicator and the fact that we see coins being created means there’s innovation around it, but excluding those I think the best place to look is before there was a financial motive and look at the crypto punk movements and those who’d been trying to do trustless computing since the 90s in order to use technology to make society more fair and democratic.

I think the statement “it doesn’t solve anything” is hyperbole that makes the nuanced argument you’re making (that I don’t disagree with) hard to have. How is a block chain useful at all if it’s current main application “doesn’t solve anything?”

By the way, it does, just not for first world countries which is a pretty ignorant position to have. What if your country’s money is being devalued by morons in government? Or you’re being financially persecuted? Or the banking system is horrible. Or you just want to send back your family money. The problem now is the high fees, but once someone figures that out it solves it in a major way, don’t you think?

Most interesting thing is, at least for me, that these are not doing a great job convincing cryptocurrency supporters that there is a bubble. The logic goes - If everyone thinks it is bubble, it probably is not a bubble.

I wonder how much of this record rally can be attributed to the upcoming Futures market. Anyone has theories on this?

"The growth of the Internet will slow drastically, as the flaw in 'Metcalfe's law'–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."

The pricing of the railways was completely insane compared to any reasonable business projections. Everyone was saying that there was a financial bubble (they were well aware of the Dutch tulip mania) as more railways were built with ever more insane valuations, all designed to be repackaged into shares to be sold onto the next fool.

Punchline: because the trains had to stop to pick up coal and water along the way, the railway operators discovered that most of their business wasn't coming from end-to-end journeys between big locations (which was what the railways were built to do), but instead from people getting on and off at stops along the way. With this sudden extra source of income, the railways returned quite a healthy return to their investors.